CA Nitin Kaushik recently highlighted a cautionary tale on social media about a client who lost significant wealth by investing in the right funds but for the wrong time.
The client’s portfolio, valued at Rs 5 crore, was spread across large-cap, flexi-cap, and small & mid-cap mutual funds, yet impatience led to disappointing results.
Here’s the breakdown of his investments: Rs 2 crore in large-cap funds held for 2 years (recommended 5+ years), Rs 1.5 crore in flexi-cap funds held for 3 years (recommended 7+ years), and Rs 1.5 crore in small & mid-cap funds held for 5 years (recommended 10+ years).
What went wrong? While large-cap funds delivered steady growth, the client sold too early, capping potential gains. Flexi-cap funds, which tend to be more volatile, didn’t get sufficient time to recover from market swings, resulting in missed opportunities for compounding. Small & mid-cap funds, often high-risk and high-reward, were in promising sectors but suffered huge unrealized losses due to impatience.
The key takeaway from Kaushik’s example is that choosing the right fund is only part of the equation. Equally important is respecting the recommended holding period for each type of fund. Large-cap funds require moderate patience, flexi-caps need more time to stabilize, and small & mid-caps demand long-term commitment to ride out volatility.
Investors must resist the urge to exit early during market fluctuations. The lesson is clear: patience pays off big in investing, and understanding the time horizon for each fund type is crucial for maximizing wealth and achieving financial goals.
Investing is a key part of financial planning, helping individuals grow wealth, secure their future, and achieve financial independence. A common question, however, is: When should you start investing? While the ideal timing depends on personal circumstances, some guiding principles can help you decide.
The power of time in investing
One of the strongest reasons to start investing early is the power of compound interest. Compound interest occurs when your investment returns begin generating their own returns, magnifying your wealth over time-even from small contributions.
Consider two investors: Ravi starts investing ₹10,000 per month at age 28, while Meera begins investing the same amount at age 38. Assuming an annual return of 10%, by age 65, Ravi would have approximately ₹2.85 crore, whereas Meera would accumulate around ₹1.05 crore. Even though both invest the same monthly sum, Ravi’s earlier start allows him to more than double Meera’s wealth, illustrating the immense benefit of extra years of compounding.
When to Begin Investing
While starting early is ideal, your financial readiness matters. Ensure you have a stable income, manageable debt, and an emergency fund covering three to six months of expenses. Define clear goals, whether saving for retirement, a home, or your children’s education, and align your investments with your risk tolerance and time horizon. Understanding different investment options-stocks, bonds, mutual funds, real estate-helps you make informed decisions and avoid unnecessary risks.
Investment Strategies Across Life Stages
Younger adults (20s-30s) can focus on growth-oriented portfolios with higher stock allocations. Middle-aged investors (40s-50s) should balance growth with stability, while those near retirement (60+) should prioritize capital preservation and income generation.
Market timing is unpredictable, so a disciplined approach like rupee-cost averaging-investing consistently regardless of market conditions-can lead to better long-term outcomes. Start investing when you’re financially prepared, leverage compound interest, and align your strategy with your life stage to build a strong financial future.